Term insurance comes in two basic varieties—level term and decreasing term. These days, almost everyone buys level term insurance. The terms “level” and “decreasing” refer to the death benefit amount during the term of the policy. A level term policy pays the same benefit amount if death occurs at any point during the term. Show Common types of level term
Renewable term policiesYearly renewable term, once popular, is no longer a top seller. The most popular type is now 20-year term. Most companies will not sell term insurance to an applicant for a term that ends past his or her 80th birthday. If a policy is “renewable,” that means it continues in force for an additional term or terms, up to a specified age, even if the health of the insured (or other factors) would cause him or her to be rejected if he or she applied for a new life insurance policy. Generally, the premium for the policy is based on the insured person’s age and health at the policy’s start, and the premium remains the same (level) for the length of the term. So, premiums for 5-year renewable term can be level for 5 years, then to a new rate reflecting the new age of the insured, and so on every five years. Some longer term policies will guarantee that the premium will not increase during the term; others don’t make that guarantee, enabling the insurance company to raise the rate during the policy’s term. Some term policies are convertible. This means that the policy’s owner has the right to change it into a permanent type of life insurance without additional evidence of insurability. “Return of premium”In most types of term insurance, including homeowners and auto insurance, if you haven’t had a claim under the policy by the time it expires, you get no refund of the premium. Your premium bought the protection that you had but didn’t need, and you’ve received fair value. Some term life insurance consumers have been unhappy at this outcome, so some insurers have created term life with a “return of premium” feature. The premiums for the insurance with this feature are often significantly higher than for policies without it, and they generally require that you keep the policy in force to its term or else you forfeit the return of premium benefit. Some policies will return the base premium but not the extra premium (for the return benefit), and others will return both. 1 Which of the following types of families is likely to have the least need for a large amount of life insurance?
2 The human life value is defined as the
3 Which of the following pieces of information is needed to calculate a person's human life value?
4 To calculate a human life value, it is necessary to deduct certain costs from a person's average annual earnings. These costs include
5 All of the following are defects which limit the usefulness of the human life value approach in determining the correct amount of life insurance to purchase EXCEPT
6 Which of the following statements about the needs approach for estimating the amount of life insurance to purchase is (are) true?
7 Which of the following is a cost/expense that an estate clearance fund is designed to pay?
8 What is the length of the readjustment period which is considered when the needs approach is used to determine the amount of life insurance to own?
9 Under the needs approach, when is the dependency period of a surviving spouse assumed to end?
10 The period during which a surviving spouse is ineligible for Social Security benefits is referred to as the
11 Which of the following statements about premature death is (are) true?
12 Which of the following statements about re-entry term insurance is true?
13 Which of the following is a noneconomic cost associated with premature death?
14 Tom and Nancy Boyle provide financial support for their two children. In addition, they provide financial support for Tom's aged father and Nancy's aged mother. The Boyle family can be described as a
15 Julian, age 45, would like to determine how much life insurance to purchase using the human life value approach. He assumes his average annual earnings over the next 20 years will be $40,000. Of this amount, $20,000 is available annually for the support of his family. Julian will generate this income for 20 more years and he believes that 5 percent is the appropriate interest (discount) rate. The present value of one dollar payable for 20 years at a discount rate of 5 percent is $12.46. What is Julian's human life value?
16 Jessica is an agent for LMN Life Insurance Company. She met with Brad, who was interested in purchasing life insurance. Jessica explained the various uses of life insurance, including income for Brad's wife during the 1- or 2-year period following Brad's death. This period is known as the
17 Sarah is using the needs approach to determine how much life insurance to buy. Her cash needs are $30,000; her income needs are $140,000; and special needs are $100,000. Sarah has the following assets: $20,000 in bank accounts, $30,000 in retirement plans, and $40,000 in investment accounts. Sarah owns no individual life insurance. She is covered by a $50,000 group life insurance policy through her employer. Based on this information, how much additional life insurance should Sarah purchase?
18 Which of the following statements regarding convertible term insurance is true?
19 Bill is attempting to determine how much life insurance to purchase. He has two dependent children and his wife does not work outside of the home. An advisor suggested that Bill should consider Social Security benefits when doing his life insurance planning. One concern in this regard is the period after Social Security benefits to a widow terminate until they resume again. This period is called the
20 When using the needs approach, several "special needs" should be considered. One special need is money to cover unexpected events, such as major car repairs, dental bills, or home repairs. Money set aside for this purpose is called a(n)
21 Most family heads need substantial amounts of life insurance. However, with limited income, money spent on life insurance reduces the amount of discretionary income available for other high-priority needs. What an insured person gives up when he or she purchases life insurance instead of using the premium dollars for other purposes is called the
22 Which of the following statements about yearly renewable term insurance is (are) true?
23 What happens to the premiums for yearly renewable term insurance as an insured gets older?
24 Which of the following statements about term insurance is true?
25 All of the following statements about the conversion of a term policy are true EXCEPT
26 Which of the following statements about a decreasing term insurance policy is true?
27 The purchase of term insurance is justified by which of the following circumstances?
28 A legal reserve in life insurance is a result of
29 The net amount at risk for an ordinary life insurance policy is the difference between the
30 Which of the following statements about life insurance cash values is (are) true?
31 All of the following statements about ordinary life insurance are true EXCEPT
32 Which of the following statements about limited-payment life insurance is true?
33 Which of the following statements about endowment insurance policies is (are) true?
34 Which of the following statements about variable life insurance is true?
35 All of the following statements about universal life insurance are true EXCEPT
36 Which of the following statements about universal life insurance is (are) true?
37 All of the following statements describe the flexibility available to the owner of a universal life insurance policy EXCEPT
38 Which of the following statements about a variable universal life insurance policy is (are) true?
39 All of the following statements about current assumption whole life insurance are true EXCEPT
40 A whole life insurance policy in which premiums are reduced for an initial period (e.g. 3 years) and are higher thereafter is an example of a
41 Which of the following statements about policies sold to preferred risks is (are) true?
42 Which of the following statements about second-to-die life insurance is (are) true?
43 Which of the following statements about savings bank life insurance is true?
44 Which of the following statements about home service life insurance, which evolved over time from a type of life insurance called industrial life insurance, is true?
45 Michael wants to make sure that life insurance proceeds are available to pay his outstanding mortgage balance if he dies. He purchased a type of life insurance in which the amount of coverage gradually declines, just as his outstanding mortgage balance gradually declines. This type of life insurance is called
46 Carl would like to purchase life insurance. He would also like to invest in a mutual fund. An agent told Carl about a form of life insurance in which Carl could select where the saving component is invested. This form of life insurance has fixed premiums and the cash value is not guaranteed. This type of life insurance is called
47 Tamara purchased a term insurance policy when she had high life insurance needs and limited income. Now Tamara can afford whole life insurance. What term life insurance provision will permit Tamara to switch her term insurance to whole life insurance without having to show that she is still insurable?
48 Alex, age 26, purchased a 20-payment whole life insurance policy. After Alex has made 20 premium payments, his life insurance policy is considered
49
Ann is considering the purchase of a life insurance policy with these characteristics: flexible premium payments, the insurance and savings components are separate, the interest rate credited to the cash value is tied to a changing market interest rate but a minimum interest rate is guaranteed, and a monthly administrative fee is charged. Ann is considering buying
50 Dave purchased a life insurance policy. The policy is nonparticipating and the cash values are based on the insurer's present mortality, investment, and expense experience. After 2 years, the insurer will recalculate the premium based on the mortality, investment, and expense experience at that time. Dave purchased
51 Which of the following $100,000 whole life insurance policies, issued by the same company to a man age 32, would require the highest first-year premium?
52 Which of the following statements about variable universal life insurance is (are) true? I Variable universal life insurance has fixed premium payments.
53 Which statement is true concerning the economic problem of premature death in the United States?
54 Which of the following statements is (are) true regarding the results of the 2014 study by the Life Insurance Market Research Association (LIMRA) on the adequacy of life insurance owned by households in the United States?
55 Which of the following statements is true regarding return of premium term insurance?
56 The difference between the legal reserve of a whole life policy and the face amount of insurance is the
57 Gwen purchased an interesting life insurance policy. A minimum interest rate is guaranteed on the cash value, but additional interest may be credited based on the investment performance of a group of common stocks. There is also a cap on the additional interest credited to the policy. Based on this information, what type of life insurance did Gwen purchase?
58 A common use of second-to-die life insurance is
59 Which of the following statements about indexed universal life insurance is true?
60 All of the following statements about employer-provided group life insurance are true EXCEPT
What is a decreasing term life insurance policy?Decreasing term life insurance is a policy where the benefit declines on either a monthly or annual basis. The size of the policy continues decreasing until either the policy pays out or until the end of the coverage period.
What is one important element of decreasing term insurance?One important element of a decreasing term life insurance policy is that the death benefit decreases over time. This can provide protection for a specific period of time, such as when you have a mortgage.
Which of the following would be the most appropriate use for decreasing term insurance?Which of the following life insurance policies is most appropriate for mortgage protection? Decreasing term is most commonly used to secure a loan or a mortgage. As the mortgage is paid off, the face amount decreases.
Which is the decreasing term plan?A decreasing term insurance plan is a term plan where the Sum Assured decreases every year by a fixed percentage. Other features of the plan are similar to normal term insurance plans and are as follows: You can choose the original Sum Assured under the plan which then reduces every year throughout the policy tenure.
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